Standing Committee A

[Mr. John McWilliam in the Chair]

Finance Bill

(except clauses 4, 5, 20, 28, 57 to 77, 86, 111, and 282 to 289, and schedules 1, 3, 11, 12, 21 and 37 to 39

John McWilliam: Gentlemen may remove jackets; it is a bit warm today. Of course, ladies do not need ask.Clause 79 Exemption for loaned computer equipment

Clause 79 - Exemption for loaned computer equipment

Mark Prisk: I beg to move amendment No. 59, in
clause 79, page 75, line 21, leave out '£500' and insert '£550'.
 May I take this opportunity to welcome you to the Chair, Mr. McWilliam, for the challenging and exacting, but nevertheless interesting, day ahead? 
 The clause will extend the home computing initiative to cases where benefit would be taxable as earnings; for example, where an employee is offered a loan of a computer instead of a salary. Amendment No. 59 would change the exemption, but, as I am sure eagle-eyed members of the Committee will realise, not by a great deal—from £500 to £550. Its purpose is to establish the Government's reasoning for retaining the figure of £500, so it is a probing amendment. 
 As I understand it, the origins of the scheme lie in the Finance Act 1999, and the idea was to widen the availability of information technology. That goal is a good one for employees and employers alike. The £500 is a annual taxable benefit, so it translates into £2,500 as an actual capital purchase because, at that point, an asset would be taxed at 20 per cent. In 1999, that represented a reasonable cost for a home computer, printer and so on. However, in the five years since the basic standards of computing have changed, as hon. Members are aware. Computers have changed in terms of their capability, the range of peripherals that are engaged and connectivity. I know that a number of hon. Members have a particular interest in internet access and other such activities. It is internet access that particularly concerns me. Taking that into account, and the other essential back-up equipment such as scanners and printers, there is a serious question whether the taxable benefit offered is up to date with current home computing needs.

Rob Marris: Will the hon. Gentleman give way?

Mark Prisk: I am happy to give way.

John McWilliam: Order. May I remind hon. Members that the amendment is very narrow? It deals with the difference between £500 and £550.

Rob Marris: Thank you for that guidance, Mr. McWilliam. Does the hon. Gentleman accept that since 1999, the cost of most computing equipment has fallen?

Mark Prisk: That is why I have made sure that the increase is very small. In some ways, it is a notional increase because, as I said, the aim of the exercise is to understand the reasoning behind the £500 figure, rather than to argue that there has been a vast inflation in computer prices. There have been changes in capability and connectivity, but the hon. Gentleman is right to suggest that there has not been a huge inflation in the hardware costs.
 To conclude, I ask the Paymaster General to clarify what is included as eligible equipment. Is the installation of ISDN or broadband access included? That point was not relevant in 1999, but it is now. Clearly, in a home computer initiative that concerns an employer-employee relationship, we would expect internet access to be broadband, so it would be interesting to know whether that has been incorporated in the Government's proposals. Do the Government intend to adjust the limit in the coming years in light of computing cost changes?

Dawn Primarolo: Good morning, Mr. McWilliam. As the hon. Member for Hertford and Stortford (Mr. Prisk) has pointed out, the amendment proposes a modest increase. I take him at his word when he says that he is seeking to find out why the Government have left the figure at £500, rather than have the £550 exemption he proposes.
 Under the hon. Gentleman's proposal, where the employer owns the computer equipment and the annual tax charge is therefore 20 per cent. of its value, up to £2,750 could be lent tax-free instead of the present value. He proposes that the exemption rise from £2,500 to £2,750 and that, if the employer leases or hires the equipment, the exemption would cover the leasing charge of £550 instead of the current £500. 
 The hon. Gentleman said that the increase was modest. I will not pretend to the Committee that the amendment has any significant prospects. It is true, however, that the £500 annual value limit has remained unchanged since the exemption was introduced in 1999 and that, as my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) said, the price of IT equipment has generally fallen in recent years. 
 If the hon. Member for Hertford and Stortford were to look at the current price of packages, he would see that a complete package costs £500 to £600, as opposed to up to £2,500. Widespread advertising indicates to us that £500 for the package is reasonable. An IT package for an individual home user can be purchased for under £1,000. The current exemption allows equipment of a value up to £2,500, so it takes on board the points that the hon. Gentleman makes, including those about other costs. 
 The questions about the general impact of exemption and the review are very relevant.

John McWilliam: Order. Every member of the Committee potentially has an interest in the amendment, so I shall declare it for all of them.

Mark Prisk: Mr. McWilliam, you are quite right to identify that there is, if not a conflict of interest, then a particular potential close interest. Will the Paymaster General therefore confirm that eligible equipment, leaving aside the argument about whether it is owned by the employer, includes the items to which I referred, namely the installation of broadband access and/or ISDN access?

Dawn Primarolo: Under the current exemption, the telecommunications costs are not included but the equipment costs are.

Mark Prisk: Will the Paymaster General clarify that? Clearly, some Members will be thinking to themselves, ''Where is the line to be drawn between paying, say, British Telecom to install the box and the subsequent subscription?'' I assume that they are defined as two different things, but for employers' sakes it would be helpful to clarify that.

Dawn Primarolo: I assume that they are two different issues: one is the installation and the other is the ongoing cost. That is the line that I draw, but if I am wrong, I shall of course write to the hon. Gentleman. I understand that installation—he gives the example of an ISDN line—would be included, but there is obviously an ongoing cost, which would not be included in the exemption: so, the hardware, yes; the telecommunications or ongoing costs, no.
 Since the exemption was introduced, we have not had exact figures on the take-up for obvious deregulatory reasons. Employers do not have to report to the Inland Revenue details of an exempt benefit. Other information, particularly the changing arrangements between employee and employer—the introduction of flexible working and the growth of home working, particularly in IT, the development of which has assisted work-from-home—demonstrates that, increasingly, employers are loaning employees computers. We are trying not to get mixed-up private use but to give a blanket exemption. That ensures that, if computers are used for any other private purpose, there is no benefit tax charge. That is important. I am sure that the hon. Gentleman wants to achieve that, because our aim is to encourage the use of technologies. 
 That raises the question about the work of the e-envoy, the campaigns that the Department of Trade and Industry is developing on the home computer initiative and the results of that. This seems to me to be an appropriate time to return to the point about whether £500 is enough.

Michael Jack: The Paymaster General made an interesting comment when telling the Committee that no detailed returns were kept about the uptake of the proposal. If that is the case, on what basis will the Government evaluate whether it has been a success?

Dawn Primarolo: I know that the right hon. Gentleman always has an interest in these areas. I can tell him that the recently launched national home computing initiative aims substantially to boost take-up of the computer home loans schemes among employers and employees. It is led by the Office of the e-Envoy and within the remit of the DTI, and it will be monitoring take-up in the coming months. That information will demonstrate to us whether the £500 is reasonable, what type of equipment is being purchased and how wide take-up is.

John McWilliam: Order. This debate has gone so wide that, if Members want to make any points about clause stand part, they may as well make them now, because I feel totally disinclined to allow clause stand part.

Dawn Primarolo: I apologise. I was trying to be helpful to the Committee and did not mean to stray beyond the amendment.

John McWilliam: It was not particularly the Paymaster General who I was getting at. She was not alone, but the debate has become so wide that it would be wrong of me to allow one on clause stand part. So, will any Members who want to make a point in clause stand part make it now?

Dawn Primarolo: I was concluding my remarks by saying to the hon. Member for Hertford and Stortford why I think that the £500 is reasonable at this point given the reduction in the cost of IT packages. None the less take-up is a live issue and one that both sides of the Committee want to encourage.
 We particularly want to make sure that the exemption is simple to operate and, therefore, to reduce requirements to report to the Inland Revenue. The campaign being undertaken by the Office of the e-Envoy will, I sincerely hope, provide the information necessary for the Government to make the judgment that the hon. Gentleman is probing us to make—whether the limit is correct—and check the point that the right hon. Member for Fylde (Mr. Jack) made about whether the limit is working in assisting the expansion of the home computer schemes and boosting the relationship between employee and employer. 
 On that basis, I hope that I have dealt with the questions that the hon. Gentleman has raised and, therefore, that he will not press his amendment. Even though I said that it was modest, if he put it to a vote, I would, at this stage, reluctantly have to ask my hon. Friends to oppose it.

Mark Prisk: The Paymaster General has run through the issues raised in a helpful manner. As I said, this is a modest amendment; in fact, it is perhaps better described as shy. I am grateful to the right hon. Lady for elaborating on the points raised. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 79 ordered to stand part of the Bill.

Clause 80 - Vans

Question proposed, That the clause stand part of the Bill.

Quentin Davies: May I ask for your guidance, Mr. McWilliam? As you will see, the main effect of the measure is contained in schedule 14. I do not want to try your patience by speaking for too long in the clause stand part debate on the general issues raised by the proposal, only to be told that I have lost my chance to speak on schedule 14. It would be helpful to know what your views are.

John McWilliam: The clause is very narrow. It merely gives effect to the schedule and states which year it has effect from. The meat is in the schedule, so will the Committee please have the debate when we get to the schedule?
 Question put and agreed to. 
 Clause 80 ordered to stand part of the Bill.

Schedule 14 - Vans

Question proposed, That this schedule be the Fourteenth schedule to the Bill.

Quentin Davies: This is a good example of the Government at their worst in tax matters. It is a small example, but it is quite interesting. It is a small vignette of the major problem that we face. We know that the Government have lost control of fiscal policy, as I argued in detail on Second Reading. That was never refuted. They desperately need money. They are borrowing £37 billion or £38 billion and they are thrashing around in desperation looking to get money back from any taxpayer they can find who may be vulnerable to a new provision of this kind. Their eyes have alighted on van drivers, and I am afraid that van drivers are therefore being targeted and that as much money will screwed out of them as possible. That is basically the purpose of the measure.
 Another aspect of the schedule, which is a microcosm of the Bill, in that it is extraordinarily heavy-handed. The Government are using a sledgehammer to crack a nut, or, perhaps I should say, a van driver. The schedule is six and a half pages long, and, as if that was not enough, there are another six pages of explanatory notes. When there are as many pages of explanatory notes as there are pages in the Bill, something is clearly wrong. There are endless laborious definitions of new bureaucratic concepts such as business travel requirements, commuter use requirements and restricted private use provisions.
 There are even two equations. They are mercifully relatively simple linear equations, but I do not doubt that one day the Government will come up with provisions that require us all to solve differential 
 equations in order to work out our tax liability, and that we will go to jail if we do not succeed. I am afraid I shall be joining the group going to jail—I better not say that because it might be a rather seductive prospect for the Government; I do not want to give them ideas. 
 I do not know whether it is true that most van drivers naturally think algebraically and will think it helpful to have their tax liability expressed in terms of equations. However, it is possible that not all van drivers think algebraically. The Government must think about the complexity that they are introducing into the Taxes Acts with measures of this kind. They are not defining a liability to a purely corporate tax, such as petroleum revenue tax, which no individual ever pays. 
 It is certainly not good enough to say that the employer will have the task of assessing employees under the provision, because—I hope that the Government will not disagree with me—it is important that employees understand the basis of the tax code that the employer gives them. Any kind of mystification that makes it more difficult for employees to understand their position under PAYE is inherently undesirable. It is not an excuse for this kind of complexity to say that under PAYE the employer will have the burden of doing most of the calculation. 
 Nor is it an excuse—I say this having worked with the Charted Institute of Taxation for many years —that people who do not understand such things can always go to professional advisers. That is not an acceptable answer from the Government. I do not believe that that is right, and nor do members of the Chartered Institute of Taxation, which is high-minded about such matters and not cynical. It believes that we should not generate additional, gratuitous complexity simply to provide an earning stream for advisers. Undue complexity is an important issue and anyone who cares to waste quarter of an hour of their lives by reading the schedule in detail will recognise that it is extremely heavy-handed and convoluted.

Rob Marris: Does not the hon. Gentleman accept that, since 1993, when the £500 was introduced, there has been some inflation and, furthermore, a change in the nature of people's vehicles? Some people avoid company car taxation by obtaining what purports to be a van because of the changing nature of available vehicles.

Quentin Davies: I fear that I cannot go along with the hon. Gentleman on either of those points. There has been some inflation, but not of 600 per cent., which is the difference between the £500 and the £3,000 that van drivers may have to pay if we accept the schedule. I am not an expert on the changes in the types of vehicles available, so I shall leave him to enlighten the Committee if he feels that that is relevant to our deliberations.
 The sad thing is that, despite this extraordinarily heavy apparatus for attacking poor van drivers, the result is imprecise and slovenly drafting which leaves open all sorts of ambiguities. I refer the Committee to paragraph 5 of the schedule, which inserts new section 
 155 into the Income Tax (Earnings and Pensions) Act 2003. New subsection (4) states that the restricted private use condition is met if 
''the commuter use requirement is satisfied throughout the year . . . or the extent to which it is not satisfied during that period is insignificant''. 
What does ''insignificant'' mean? If you use a van once a month or once every three months, is that significant? That is extremely unhelpful and will be difficult not just for the van driver but for the employer to get right.

John McWilliam: Order. I draw the Committee's attention to the use of the word ''you''. The only vehicle I use is my wife's car and only at her mercy.

Rob Marris: May I suggest that the hon. Gentleman is trying to have it both ways? He criticises the Government for introducing heavy-handed, over-complex legislation, but cites a new subsection containing realistic flexibility and slags off the Government for that.

Quentin Davies: The hon. Gentleman is 180° wrong. The Government have got it wrong because they seem to think that by drafting this extremely heavy schedule they can accurately define all possibilities and leave no room for doubt, but they have not succeeded in doing so. I shall propose a way in which that might be possible using a 10th or less of the words in the schedule to produce a fair system without those ambiguities. I refer the Committee to new subsection (5) which states:
 ''The commuter use requirement is satisfied at any time if— the terms on which the van is available to the employee at the time prohibit its private use otherwise than for the purposes of ordinary commuting or travel . . . neither the employee nor a member of the employee's family or household makes private use of the van at the time otherwise than for those purposes.'' 
Does ''at the time'' mean at the time when the commuter run or travel is being undertaken, or at any time when the van driver has the theoretical liability because he has use of the van? Great ambiguity is being introduced into the Bill. If it means the former, narrower definition, does that mean that someone cannot drop their child off at school on the way to work while claiming the commuter use? Perhaps the Government will explain what they have in mind, because it is unclear to me what ''at the time'' means. Perhaps it means just the relevant part of the year when the van is available. 
 Similarly, new subsection (7) states: 
 ''The business travel requirement is satisfied at a time if the van is available to the employee at the time mainly for use for the purposes of the employee's business travel''. 
''Mainly'' is identified in the Taxes Act 1988 as being more than 50 per cent. Are the courts expected to apply that definition in this case? Again, the provision is loosely drafted, despite the enormous effort that has gone into producing excessively long and convoluted legislation. It is not a good day's work by the Government. 
 I shall make three points in conclusion. First, the provision is unfair. It involves an enormous increase from £500 to £3,000, which is not at all reasonable. 
 More important, you might inadvertently—I use the word ''you'' in the sense of ''one''. I suppose that one is allowed to make use of the impersonal you.

John McWilliam: Order. The third person is always in order.

Quentin Davies: ''One'' sounds a little stilted, which is why I tend to avoid it. A van driver—third person singular—may inadvertently exceed the legitimate use of his vehicle for non-business purposes. For example, if he drops off a child at school once, it is insignificant. If he does it regularly, is it significant? What happens if he does it once a week? We just do not know.
 A driver could fall into the trap of going over the limit and suddenly find himself being assessed for a benefit in kind of £3,000, possibly for something that took him five minutes out of his way, or did not take him out of his way at all but simply involved stopping for 30 seconds outside a school. That is not reasonable, and those on the Treasury Bench are not rushing to their feet to correct my interpretation. 
 Secondly, the provision is striking in that it is completely unnecessary. It does not cover the self-employed driver at all and, anecdotally, most vans are owned by self-employed business men. My understanding of the Taxes Act 1988 is that it is perfectly legitimate for a self-employed person to claim the portion of the use of a van that is for business as a business expense, and not to claim the portion that is for private use. The balance might vary from year to year: for example, 60-40, 50-50 or 70-30. That system works perfectly well. People discuss with their inspector of taxes, if he wants to quibble about it, what reasonable business use is. Why not replicate such common-sense arrangements, which are already a part of tax common law, rather than thrust this extremely onerous bureaucracy on us?

Rob Marris: Is the hon. Gentleman seriously suggesting that every employee who has a company vehicle, whether a van or a company car, should enter into negotiations with his or her local inspector of taxes to determine what proportion of use is for business and what is private? He says that the provision is a problem because it is bureaucratic, but he suggests something that is immensely bureaucratic.

Quentin Davies: I think that the hon. Gentleman has misunderstood how this aspect of taxation works. The employer would have to take responsibility for determining whether a van that has been provided to the employee is 100 per cent. a business instrument, something to be used in connection with the business, or available for private use, and then modify the employee's tax code accordingly under PAYE. The hon. Gentleman has misunderstood the way in which employees are taxed.
 Finally, the provision does not relate at all to provisions in a Finance Bill some years ago on taxation of cars provided by employers and the extent to which private use is allowed. The value to the employee of the non-business use of a company car is graded according to the car's emissions. Perhaps there is some difference between the emissions of vans and the emissions of 
 passenger cars, meaning it would have been unreasonable to take the emissions criterion into account, in which case one could have simply defined a van for this purpose as being a car with a particular capacity or level of emissions. 
 The whole matter could have been dealt with equally fairly in two lines while introducing no different procedures from those that already exist for cars, which—Lord knows—are already complex enough. The Government have gone overboard. In their desperation to try to screw the last penny they can out of poor van drivers, who will understandably feel that they are being invidiously targeted by the Government, they have come up with a measure that will cause an enormous amount of wasted time and compliance effort on the part of employers, and a corresponding degree of consumption of time and public money in the Revenue. 
 The Government have proceeded on the wrong lines. They have something that is neither precise and unambiguous—which would have been a virtue if they had got right this extraordinarily laborious, bureaucratic system that they want to put in place—nor simple. They could have had a simpler and more unambiguous process.

Michael Jack: I am grateful to my hon. Friend for opening the batting on the issue. I would like to ask whichever Minister is to respond for a little help on the question of definition.
 My first question concerns the Treasury's definition of a van. The hon. Member for Wolverhampton, South-West alluded to the fact that the nature of a light commercial vehicle has changed over time. If a company provided an employee with a modern utility vehicle that had four comfortable seats and a truck formation at the back, which could be used in comfort for leisure and pleasure as much as business, there is not a great deal of difference between that and a company car with a big boot. If there were such a benefit in kind one would understand it if the Government wished to tax those vehicles in the same way as company cars. The reverse may well be true if the van is strictly utilitarian and full of the tools of the trade—perhaps even without a passenger seat. It is important to understand what constitutes a van, and what might reasonably be expected to be used for leisure and pleasure. 
 The next area on which I would be grateful for clarification concerns the on-call employee. That is someone in a highly mobile capacity who appears to be exempt from the provisions of the schedule because they are involved in what is called normal business travel. However, because they might be away from their home base for two or three days calling at a number of different business locations, they might conduct private business in the course of that travel. They might stop at a supermarket to do shopping. If they are not immediately on call, they might go to some place of pleasure and look at the view. Intermingled with their business requirements, there is a certain amount of leisure use of the vehicle. 
 I would be interested to learn whether that comes under restricted use—in other words, if the employer defines that within the context of carrying out various business mileage while being on call, the employee can also go to the supermarket and carry out various other duties. That would help us to make the distinction between the normal flexibilities of the use of a commercial vehicle as opposed to the outright use of a vehicle masquerading as a van that is simply a company car by any other name. I hope that we can have some further qualification of what the schedule does and does not cover.

John Healey: The schedule, alongside clause 80, introduces a major deregulation of company van rules. It reforms the system of scale charges and bases them on the type of private use, with a new fuel charge where an employer provides fuel for unrestricted private use. The current rules, as my hon. Friend the Member for Wolverhampton, South-West said, were introduced in 1993, have remained unchanged since then and no longer fit modern working practices.

Michael Jack: How many vans does the schedule cover, how many does the hon. Gentleman anticipate being brought into tax, particularly in 2007, as a result of these provisions, and how much revenue will be raised?

John Healey: The number of company-provided vans is about 290,000—a figure that we have been able to calculate from the detailed and helpful responses that we received during the extensive consultation on our proposals last year. I will come on to the question of revenue later, in answer to the points made by the hon. Member for Grantham and Stamford (Mr. Davies).
 We have consulted widely on this measure with employers and other interested parties. The responses that we received contributed significantly to the reform package, and a report on the consultation was published in April. 
 The hon. Member for Grantham and Stamford asked a number of specific questions about drafting and terminology, which I will come to later, when I will also pick up on the points made by the right hon. Member for Fylde. I would say quite gently to the former that the general remarks that he made at the beginning were misdirected. First, he accused the Government of using this as a tax-raising measure. In fact, it removes the tax charge from 85 per cent. of van drivers. Not only that, but it will cost the Exchequer £30 million a year for the first two years. 
 Secondly, the hon. Gentleman said that the measure is somehow heavy-handed and over-complex. In fact, it reduces the administrative burden on employers. That has been recognised by the Small Business Service, and the measures have received a wide welcome from manufacturers, industry and employers.

Quentin Davies: The Economic Secretary was very careful in saying that the measure would reduce revenue for two years. The charge does not go up to the
 full £3,000 for two years. What will the position be when the charge has gone up from £500 to £3,000? Will there still be a revenue loss to the Exchequer?

John Healey: Our estimates suggest that from 2007 onwards the measure will be revenue-neutral. For the first two years, there will be a cost to the Treasury of £30 million each year, and when the package as a whole comes into force from 2007, we will be talking about a revenue-neutral change.
 The hon. Gentleman asked why we did not base the proposals for the reform of the taxation of company-provided vans on those for the reform of company car taxes. He is right that company car tax reforms base the system on emissions from the cars. The simple fact is that information about emissions is not yet available for vans and it was not an option that we were able seriously to pursue. 
 The hon. Gentleman also asked why we did not treat employees who were van drivers in the same way as the self-employed. The measures in the package of reform reflect the representations that we received during the consultation from employers, and they have been widely welcomed by those employers. It has long been recognised that there are different rules for employees and the self-employed. The measure is about the taxation of benefits in kind, which is an employee issue, and there is therefore no reason to align it with those of the self-employed. 
 The hon. Gentleman asked several questions about the meaning of some of the terminology in the schedule. He asked about the meaning of ''insignificant''. My hon. Friend the Member for Wolverhampton, South-West made a very useful point when he said that rather than trying to specify the working practices and arrangements in every workplace in the Bill, the schedule allows a measure of flexibility that reflects the reality of workplaces. 
 I will exemplify some uses that might be deemed insignificant by the Inland Revenue. Insignificant use might include an employee request for a one-off private use to take an old mattress to the tip, an employee regularly making a slight detour to stop at a newsagent on the way to work, or to drop off a child at school, as the hon. Gentleman said, or stopping off at a dentist on the way home. Essentially, we wanted to avoid the case in which a one-off journey outside the strict scope of the home-work travel route propelled an employee into a £3,000 charge.

Quentin Davies: The Economic Secretary has been very helpful in elucidating those points. If an employee delivers his child every day to school with his van, is it regarded as insignificant non-business use?

John Healey: If that is a stop-off en route, it will be acceptable. Introducing the provision for insignificant use simplifies the procedures for employers by enabling them to dismiss intermittent or incidental private use. Beyond that, the Revenue is examining the representations that have been made by some of the professional bodies and taking account of the concerns that have naturally been raised since the publication of
 the Bill. We plan to publish guidance after the Bill has received Royal Assent that will further help employers.
 The right hon. Member for Fylde asked about the definition of a van. He rather eloquently described what are known in the trade as double cab pick-ups. Although the Revenue and Customs have used a consistent and single definition of double cab pick-ups since 2002-03, changes in manufacture and vehicle design inevitably create some blurred boundaries. Broadly, vehicles that can legally carry payloads of 1 tonne or more will not be treated as cars. A car is primarily for the carriage of people; a van is primarily for the carriage of goods. 
 From 6 April next year, a nil charge will apply to employees who take their van home and are not allowed any further private use. That responds directly to the representations of employers that most employees are provided with a van for work and are expected to take it home overnight. In future there will be no tax or national insurance charge in such circumstances, which will involve about 85 per cent. of van drivers and save the basic rate taxpayer as a van driver about £110 per year. 
 If unrestricted private use is allowed, the existing scale charges depending on the age of the van will apply. However, from 6 April 2007, employees who choose to make full private use of their company van will be taxed on £3,000, which will mean tax of about £55 per month or £660 per year for a basic rate taxpayer. If an employer also provides free fuel for unrestricted private use, a new fuel charge of £500 will apply, meaning tax of about £9 per month for a basic rate taxpayer. 
 The hon. Member for Grantham and Stamford implied a concern for the environment and asked why the Government did not introduce a scheme based on emissions for vans, but the regime that we are proposing will help the environment. The reform abolishes a rather perverse incentive to drive older and more polluting vehicles because the tax charge on them is lower. The new fuel charge will reduce the blanket acceptance of fuel charge for private use and make it a matter of choice and consequence for employees. The introduction of a nil charge will limit private use to travel from home to work for more than 85 per cent. of users, generating a reduction in the amount of private mileage undertaken in commercial vehicles. 
 The reform will also reduce the overall administrative burden on employers. I mentioned the Small Business Service's recognition of that. We have consulted, listened, acted on the responses and recognised that company vans are used differently from company cars. The schedule modernises the tax rules for company vans and exempts more than 85 per cent. of current van users from tax charge altogether. It provides a major deregulation for employers, with scale charges in the future that properly reflect the benefit of private use. It has been praised and welcomed by the industry, by manufacturers, by representative bodies and by employers. On 25 March, Fleet News said in an article that the reform was
''a major boost for van fleets''. 
On that basis, I commend the schedule to the Committee. 
 Question put and agreed to. 
 Schedule 14 agreed to.

Clause 81 - Emergency vehicles

Question proposed, That the clause stand part of the Bill.

Quentin Davies: I cannot deliver the same strictures on this clause as I did on the previous one, because it is quite a simple clause and takes up less than a page of legislation. The Government can be commended for that. I think that the main purpose is very sensible. It is that, where employees are required to be on call because they work in the emergency services, no private use issue should arise. That seems to be eminently sensible. I do not think that any of us would think that emergency vehicles were suitable for general private leisure use. I am certainly not arguing that.
 As in the last clause, there is a rather steep threshold, and if one should find oneself, inadvertently or otherwise, going over the threshold into private use, one would have to pay a large amount of money. However, I do not think that there is any serious objection to the clause. I think that it is a useful reform. 
 Question put and agreed to. 
 Clause 81 ordered to stand part of the Bill.

Clause 82 - European travel expenses of MPs and other representatives

Question proposed, That the clause stand part of the Bill.

John McWilliam: I think that I had better declare a blanket interest for all of us.

Howard Flight: I welcome you to the Chair, Mr. McWilliam. If I understand it correctly, we cannot do anything about the clause, as we are simply implementing a resolution of the House.
 The provision updates and modernises the existing arrangements giving tax exemption for EU travel expenses paid to MPs. It covers travel 
''between the UK and a relevant European location'' 
and defines ''European location'' as an EU ''institution or agency''. It is effective from 6 April 2004. 
 I have great reservations about the arrangements. I think that they bring MPs into disrepute. There is no logical argument for paying expenses to potter across to Europe rather than paying expenses to go to see a politician in America. Both are equally important or non-important. I think that it is widely open to abuse and to swans. I am pleased to say that, as a deliberate matter of principle, I have never used it, although I 
 have visited European politicians on many occasions. It is the sort of arrangement that I think we would be better off without, but here we are with it.

John McWilliam: A resolution in the House is not a constraint on a Committee. We make law by legislation. We do it in Committee and on the Floor of the House, and we are not bound by a resolution of the House.

Michael Jack: I rise to disagree fundamentally with my hon. Friend the Member for Arundel and South Downs (Mr. Flight). It is not often that I express publicly what I think privately, but it is important to put on the record the common sense of what is in the clause. My hon. Friend says that it is an open sesame to freebies and general ill use of public funds. I would remind him that MPs are exempt from taxation on expenses for travel within the United Kingdom, including travel to places such as Belfast. For some years, the House of Commons has increasingly and correctly attempted to gain greater control over the use of moneys for MPs' travel, just as it is getting greater and more detailed control over the use of MPs' expenses in general. There is always an interesting friction on such matters between the Revenue and MPs, but I am pleased to say that harmony usually results.

John Burnett: I am more in tune with the hon. Member for Arundel and South Downs. Can the right hon. Gentleman help me by telling me what is meant by the words ''and other representatives'', and what he believes travel expenses to be? For example, do they cover the cost of accommodation? If such expenses were met by an outside company that paid extortionate expenses, would they also be exempt?

Michael Jack: If I were the Minister, I might answer those questions. Sadly, I am on this side of the Room and not the other. I am sure that the Treasury has heard, as was mentioned at the beginning of the debate on this clause, that this is a resolution of the House. I am surprised that the hon. Gentleman, coming from the party that purports to be in favour and strongly supportive of the European Union, should even have to ask such questions. I am sure that he is familiar with resolutions of the House about the way in which expenses are provided for travel to European institutions as defined by the clause. The expenses that we are allowed to claim for are closely defined, as is the number of journeys that we can claim for in any one year. It is not completely open to us to travel where and when we want or to see anyone we want. The terms of the travel allowance and expenses provision are closely defined by the House.

John Burnett: I would expect the right hon. Gentleman to know what he is talking about if he refers to something. I simply asked those questions for clarification. If I manage to catch your eye, Mr. McWilliam, I shall say a few words myself on the matter.

Michael Jack: In the interests of time, because I do know what I am talking about, I did not want to detain the Committee unnecessarily by going through something about which I thought that other hon. Members, and in particular Front-Bench spokesmen, would have some knowledge.
 I strongly support the measure. It is sensible that we regularise the tax position on moneys that are made available to MPs. Given the amount of European legislation that interacts with United Kingdom legislation, it is right and proper that we are able to go to Brussels to talk to the Commission and Members of the European Parliament, and to visit other European Union countries in order to foster important relationships that will be to the benefit of those who send us to this House.

John Burnett: I should like to ask the Minister not just the two questions that I asked the right hon. Member for Fylde but one other question. First, is the clause limited to the two visits that MPs are allowed?

Hon. Members: Three.

Michael Jack: You see, you should know what you are talking about.

John Burnett: Three. Secondly, what is meant by ''and other representatives''? Thirdly, if an outside company pays for MPs to visit, say, Paris, are the costs tax-free—not just the costs for accommodation but those for travel, subsistence, hotels, entertainment and so on? It is wrong for such clauses not to be debated in detail because we need to know exactly what we are talking about, in contrast with the vague assertions of the right hon. Gentleman.

Dawn Primarolo: I rise with some trepidation to bring some proportion back to the debate. The matter was fully discussed by the House and all right hon. and hon. Members were able to participate in that debate.
 Perhaps I should start by explaining briefly what the clause does. It simply updates the present tax exemption for travel expenses incurred by Members of Parliament to mirror the changes to the House of Commons scheme for reimbursing those costs. I have never claimed for such trips, but they are made in connection with our work as Members of Parliament. The trips are made are outside our travel warrants to and from our constituencies, but they none the less concern our constituencies, or the business of the House. They are limited by the House to a specific number a year. 
 The clause deals with the fact that the House of Commons scheme has recently been widened to take in travel to all European Union institutions and agencies, to national Parliaments of countries in the European Free Trade Area, and to the national Parliaments of European applicant countries. Only Croatia comes into that category from the summer of 2004. The clause updates section 294 of the Income Tax (Earnings and Pensions) Act 2003. 
 Since 1992, the House of Commons has met the cost of a maximum of three visits a year by MPs to European institutions in EU member states and 
 candidate countries. The scheme originally covered trips to Brussels, Luxembourg and Strasbourg, visits to national Parliaments of any EU member states and visits to European candidate countries. During a recent debate, the House agreed to extend the existing rules to authorised payment of the cost of travel to all European Union institutions and agencies. Under the normal employment income tax rules, relief would be available to set against the payment if the MP's visit was on constituency business, but the scheme is administered by the Fees Office, which must be satisfied by the MP that the trip is directly connected with their work as a Member of Parliament in the House, or with their constituency.

Quentin Davies: The Paymaster General is making a characteristically reasoned case. She said that she has never made such a claim for expenses. Can she confirm that that is because, as a member of the Government, the taxpayer pays for her to go to the Council of Ministers, where she has been a member of an important tax committee, and that, if it were not for that provision, members of the legislative branch of Government, as opposed to the Executive, would have no corresponding ability to have a multilateral perspective of such issues and to discuss matters with our counterparts in Europe? She is confirming that that is the difference, which is why we need the provision and she does not.
 Will the Paymaster General help me with a problem of definition? Subsection (3) refers to 
''a candidate or applicant country''. 
I am mystified by the distinction that is made between ''candidate'' and ''applicant'' countries to the EU. Is an applicant country one that made a formal application, and does it become a candidate country when a treaty of accession has been signed but the ratification has not yet taken place? For example, is the Ukraine, which is sometimes loosely referred to as a possible future member, regarded as a candidate or applicant country?

John McWilliam: Order. Interventions should be just that; that was a bit long for an intervention. I also think that hon. Members will find that Ukrainian people would prefer to be described as from ''Ukraine'', not ''the Ukraine'', which is a Russianism.

Dawn Primarolo: I can see that this debate is fraught with minor difficulties that I did not appreciate.
 I can confirm that hon. Gentleman is quite correct: when Ministers travel on Government business, the overnight accommodation costs and certainly their travel expenses are met by the Government. He also made a valid point that this House, Members of this House and the business of this House benefit extensively from the arrangements. The visits might be to forums such as the Interparliamentary Union with other parliamentary representatives in the European countries and are in order to encourage dialogue and understanding. That is precisely what I presume that all Members of the House of Commons wanted to recognise in ensuring that Members were able to travel 
 on business if it was relevant. My understanding is that the country concerned must be in the process of accession to the European Union. The answer to the point about Ukraine is that it is not a recognised destination. 
 The hon. Member for Arundel and South Downs tried to suggest that MPs would be swanning off for weekends in Europe that were not connected with their business. Frankly, trips that are made as a matter of personal choice will definitely not qualify and I am sure that, as guardians of the rules, the Fees Office will ensure that that is so. 
 On the question of accommodation, which was raised by the hon. Member for Torridge and West Devon (Mr. Burnett), I understand that such costs are included. He asked what happens if a third party were to pay them. As I understand it, that would be declarable—for instance, it would be declarable under the Register of Members' Interests. I am not in a position to say whether it would then become taxable, as I am not a tax adviser. I think that it would depend on the circumstances. The House of Commons has set the provision very narrow. Therefore, although the number of member states and institutions that could be visited has been expanded, the budget has not and the same strict rules apply as before.

John Burnett: Does the clause give exemption only to cash that is paid out by the Fees Office to Members of Parliament? My second simple point was: what do the words ''and other representatives'' mean?

Dawn Primarolo: The answer to the hon. Gentleman's first question is yes. I was coming to the question of other representatives. The provision is concerned not with the level of payments or the allowance but with ensuring that the same underlying tax rules apply to Westminster MPs and Ministers, and to their counterparts in the devolved Administrations—the ''other'' to which he referred.
 We need to maintain some perspective. In most circumstances, Members of Parliament are treated for tax in the same way as other employees. The clause does not change that and nor should it. However, specific provisions exist to deal with one or two minor areas where the particular position of Members does not fit easily into the general tax framework. As I have said, there is no more money involved, because the budget for Members' visits to European institutions will remain the same. I presume that that is a matter for the House, Mr. McWilliam, as the budgets and arrangements are set by all Members through a vote on the Floor of the House.

John McWilliam: Order. I can rule on that. It is a matter for the House of Commons Commission to compose resolutions for the House to decide on.

Dawn Primarolo: If some hon. Members are not convinced of the efficacy of the system, I assume that they will not approach the Fees Office for reimbursement of expenses for travel connected with parliamentary duties. I am always exceedingly careful, as is the House of Commons as a whole, to ensure that any arrangements for Members of Parliament are
 properly controlled, transparent and connected clearly, specifically and only with their duties as Members of Parliament.
 I have noted the opposition and antagonism to the clause of the hon. Members for Arundel and South Downs and for Torridge and West Devon. Although I may be unable to persuade them that it is reasonable, I hope that the rest of the Committee will feel reassured that the House has thoroughly investigated the issue and that the Inland Revenue has confirmed the tax treatment as it currently operates. There are still only three trips. They are still tightly controlled and they must be to the European Union, to its institutions or agencies, or to accession or applicant countries.

John Burnett: The hon. Member for Arundel and South Downs can speak for himself, but I am sure that he shares my view that clauses such as this should not go through on the nod. Of course it is important that Members of Parliament should be able to travel on business to visit other Parliaments and to meet parliamentarians. Nevertheless, the clause needed probing, and I believe that we did that.

Howard Flight: I thank you for your comments on the constitutional position, Mr. McWilliam. As I mentioned, the issue seemed to be greatly discussed on the Floor of the House, and a majority of our colleagues took a decision.
 I congratulate the Paymaster General on presenting the case with great tact. It would be only honest to say that the system is open to abuse, but let us hope that our colleagues resist that temptation. I was prompted to say what I said by a Member from another party, who suggested to me that we could have a nice weekend in Prague by finding a good excuse to see a politician. It is obvious that the system is open to such abuse, although I am sure that the House officials will do their best to query such items duly. It is not my wish to oppose the clause further.

Dawn Primarolo: The hon. Gentleman's final points are a matter for the Fees Office and the House. The clause provides only for the tax position to be maintained with the current scheme. I am sure that the House authorities will pay close attention to his points about reasons for travel. However, they do not relate to the clause, so it would be inappropriate for me to respond to them.

John McWilliam: I thank the hon. Member for Arundel and South Downs for his kind words, and hope that hon. Members understand that my comments were merely in response to the Minister's point about how the specific budget is obtained, not its tax treatment.
 Question put and agreed to. 
 Clause 82 ordered to stand part of the Bill.

Clause 83 - Giving through the self-assessment return

Question proposed, That the clause stand part of the Bill.

Andrew Tyrie: The Paymaster General brought the full weight of her 10 years' experience to bear on the previous clause, but I do not think that the full 10 years of anyone's experience is required for the next clause, with which, I hope, the majority of us agree in principle. However, a number of questions arise from it.
 We welcome the clause in principle and think that gift aid is a step forward. It provides that self-assessment taxpayers can donate all or part of any self-assessment repayment from the Inland Revenue to a nominated charity. Under the clause, that will then qualify for gift aid. To qualify, charities must apply to be added to an Inland Revenue list. That is a summary of the scheme. I have seven questions for the Economic Secretary, and shall go through them as fast as I can, although I expect that he knows what most of them are.

Dawn Primarolo: Not too fast.

Andrew Tyrie: I will go at just the right speed and if the Economic Secretary thinks that I am going too fast, he should nod his head or make some gesture. What are the criteria for going on the list? I have not seen them spelled out anywhere. Who is policing the list? About 35,000 charities are on it, so it would be helpful to know what those criteria are.
 There are a number of concerns about large, one-off repayments. Prudent taxpayers may want to be generous but may not necessarily want to give all of a large, one-off repayment to a charity, so they will set a limit. Can the Minister consider highlighting the possibility of a limit on the tax return? I have a copy of the guidance in the tax return that is being sent out, which has already been amended to take account of the clause. In order to save time, I shall not read the relevant passages out, but a very long way down, my concern is highlighted—perhaps that is too strong a word—by the paragraph that begins: 
 ''Do you want to nominate a charity to receive all or part of your repayment?'' 
That must be flagged up. Can the Economic Secretary take a careful look at it? When he has done so, he may agree with me that it must be higher up in the text. We want people to give, but not more money than they might have intended. We do not want them to make a large, one-off payment when they wanted to give only part of it. The fact that the text is tucked away so low will play into the hands of those who have advisers, who will certainly recommend a limit as a matter of course, whereas those who are unadvised and are using self-assessment returns will not. 
 There is the important question of mistakes. When, as inevitably happens from time to time, a repayment award is made in error—even the Inland Revenue makes occasional mistakes—that money presumably goes to the charity, and the error is discovered. What happens then? I understand that the intention is that the Inland Revenue will claw that money back from the charity, which, in certain circumstances and with certain charities, will be difficult. That raises a number of questions. How in practice will that be accomplished by all 35,000 charities? Are those 
 charities vetted to get on the list of those that have the financial capacity to make repayments that have been made in error? 
 Secondly, will the Inland Revenue assure us that it will not go back to the taxpayer for that money? Thirdly, in any case, will the taxpayer not need to be informed? If he is a higher rate payer, he will need to know so that he can claim higher rate gift aid tax relief. He must be told. 
 Fourthly, when the error is by a taxpayer, the Revenue will of course want to recover the money from them as it already does when money is paid to a nominee. In the case in question, the money is to a charity, and it might be asking a lot of a taxpayer to refund in those circumstances. I understand why the Revenue would want to enforce that, but I can see some problems ahead. 
 When I considered the issue of mistakes, I concluded that not all the angles of the clause had been thought through. I have raised several questions and I ask the Economic Secretary to consider them, even if he cannot answer them now. 
 I have a few more questions.

John Burnett: Christ.

Andrew Tyrie: The hon. Gentleman is shocked, but there are more points to be made.
 Will the Economic Secretary explain why an election cannot be made under section 98 of the Finance Act 2002? Why can a repayment of gift aid relief not be carried back a year? I have not seen an explanation for that. Why is it restricted to self-assessment? The Government are reducing self-assessment; higher rate taxpayers are no longer automatically included, so would it not be logical to help charities by enabling those that regularly receive tax repayments to use the provision? They are the so-called R40 claims cases. 
 Incidentally, in a representation from the Chartered Institute of Taxation, it was pointed out to me that the Economic Secretary suggested that that was his intention when he introduced the provisions a couple of years ago. He said: 
 ''I reassure him that the carry-back provision that we are discussing is available to all taxpayers. The self-assessment return is simply a convenient mechanism for claiming it; the Government and the Inland Revenue will make available alternative routes for those who do not receive self-assessment returns.''—[Official Report, Standing Committee F, 13 June 2002; c. 402-403.] 
It seems that the Government originally intended that provision, but that they are not now enacting it. 
 Finally, on the question of short returns, will those using the new short forms from April next year be eligible for the scheme? As far as I am aware, they are not currently. This is the second trial year of short returns. Why have they been omitted? Is it because of complexity? Is the Economic Secretary sure that they need to be omitted?

John Healey: As the hon. Gentleman says, the clause introduces a new facility on self-assessment returns to allow individuals to give all or a specified amount of
 their tax repayment to charity. The taxpayer will specify to which charity the donation is to be made and they will be able to make a gift aid declaration on the return so that the donation can be worth even more to the charity. The taxpayer can also choose to remain anonymous and still make the donation under gift aid.
 I welcome the welcome in principle for the clause from the hon. Member for Chichester (Mr. Tyrie). I lost count of the precise number of questions that he asked, but I hope that I have not lost track of the points that he wanted answering. On the question of highlighting a possible limit, I will consider his points made and determine whether due and appropriate attention has been given to making taxpayers aware of it. 
 That was No. 1—no, in fact it was the hon. Gentleman's question No. 2, but to return to his first question, there are some 38,000 charities on the list and the number is increasing all the time. Charities have the opportunity to enter their names on it throughout the year, and it is regularly updated so that taxpayers can access the information. There are no criteria—there is a process. That is because, by asking charities to put themselves forward for inclusion we can offer taxpayers a single list from which to choose that does not exist anywhere else. If there were another suitable and comprehensive list, we would use it. All that the taxpayer has to enter on the return is the code for the charity. That should eliminate errors and confusion about which charity has been chosen to benefit from the repayments. The approach has allowed the Inland Revenue to develop a streamlined process. The charities signing up have simply to provide their bank account details, allowing donations to be paid directly into their accounts. Charities receive the tax repayments on gift aid donations made that way without having to make claims.

Andrew Tyrie: Just to clarify that, is the policeman for the list the Charity Commission?

John Healey: That is not strictly true—it is an administrative list that does not bestow or signify any status. It is compiled and maintained by the Inland Revenue because no suitable list is held by any other body. It allows the Revenue to hold, at the charities' instigation, the information that is required to make the clause effective from the point of view of the Revenue and of the charities, and to make the matter as simple as possible for taxpayers.
 The hon. Gentleman also asked about errors—in particular, those that the Inland Revenue might make. Where, because of a mistake by the Revenue, a repayment is sent in error to a charity, the Revenue will request return of the payment by the charity. The taxpayer will not need to take any action.

Andrew Tyrie: Will the taxpayer be informed that he can claim higher rate gift aid relief?

John Healey: I am dealing here with the error that the Inland Revenue might make in directing a payment to the wrong charity. That should not affect the taxpayer in any way.
 I come to the question of why there cannot be a carry-back. The hon. Gentleman referred to the reforms in the Finance Act 2002. The provision that he referred to as section 98, allowing donations to be treated as having been made in the previous year, would not work in this situation. A donation needs to be made before the return for the previous year is filed. However, the donation of a repayment cannot be made until after the return is filed. The return generates the repayment and therefore the donation. At that point, a taxpayer cannot be certain of the precise amount of a repayment and cannot therefore claim the relief in that return. 
 He also asks about the new short return. As he knows, a pilot version of the short return has been issued to 400,000 people for the current tax payment year. He is right that it does not contain the facility for taxpayers to donate repayments to charity. That is because the form was built on the version that we used in the previous year during the much smaller pilot. I can confirm that the facility should be on the form for 2004-05 and we expect that that will be issued to 1.5 million taxpayers. 
 The measure offers a new, simple way for individuals to make donations to charity. Taxpayers will be prompted, in completing their returns, to consider charitable giving. They will also be encouraged to make use of gift aid. Charities should therefore benefit from more donations and from extra tax on donations that are gift-aided. Currently the amount is 28p in every pound donated. 
 I hope that members of the Committee will see the measure as the latest in a series that we have implemented to boost charitable giving—notably those in the 2000 package—that have proved to be a significant success for charities. In 1999-2000 about 43,000 charities claimed gift aid. In 2003-04 the number was about 56,000. In 2000-01, charities claimed £222 million in gift aid. Two years later, the sum was £506 million—nearly two and a half times the amount of tax relief topping up charity incomes. Charities see great potential in the new facility brought in under clause 83. There are about 3 million self-assessed repayments each year, totalling about £3 billion. 
 Finally, charities will receive the donations automatically through bank automated clearance system—BACS—transfer, and will receive tax repayments on any gift-aided donations without making any claims to the Inland Revenue. The system is very easy for charities. As I have explained, charities that are not yet on the list can be added throughout the year. 
 Question put and agreed to. 
 Clause 83 ordered to stand part of the Bill.

John Burnett: On a point of order, Mr. McWilliam.

John McWilliam: Order. Before the hon. Gentleman raises his point of order, I want to point out that there is a large group of amendments to schedule 15. Clause 84 gives effect to schedule 15 and specifies the start year. I suggest that if members of the Committee want
 to make any points about the general principle of inheritance tax they should do it in the debate on clause 84, because by the time we have dealt with the group of amendments, we will have eaten into the time on schedule 15 and it will not be possible to have that debate. Does the hon. Gentleman still want to raise his point of order?

John Burnett: I do not. I thank you, Mr. McWilliam, for anticipating what I was going to say.Clause 84 Charge to income tax by reference to enjoyment of property previously owned

Clause 84 - Charge to income tax by reference to enjoyment of property previously owned

Question proposed, That the clause stand part of the Bill.

Dawn Primarolo: I thought that it would be appropriate at the beginning of the debate to mention the points that you made about clause 84, Mr. McWilliam, which simply enables schedule 15 to take effect. I shall not discuss the details of the schedule, but set the scene of the Government's approach.
 The provision implements one aspect of the anti-avoidance measures that we announced in the pre-Budget report last year, directed at avoidance involving the contrived use of trusts. We are concerned specifically with the range of schemes that allow wealthy taxpayers to give their assets away, or achieve the appearance of doing so, and so benefit from the inheritance tax exemption for lifetime gifts, while in reality retaining continuing enjoyment of and access to those assets, much as before.

Michael Jack: Will the Paymaster General give way?

Dawn Primarolo: I am happy to give way, but I do not intend to drift into discussion on schedule 15. I simply wanted to lay before the Committee the reasons for the Government's approach to the problem.

Michael Jack: I am grateful. For the sake of our understanding of the Government's line on this matter, will the right hon. Lady define what she means by the word ''wealthy'', which she just used, and suggest the amount of assets that she believes have been protected by the mechanisms that she described?

Dawn Primarolo: Indeed. The right hon. Gentleman is, as always, using his experience as a most highly regarded Financial Secretary to anticipate the major points that I want to make in my brief opening remarks. I will deal with those points as I develop the argument.
 As Committee members will be aware, avoidance on those lines has been a risk ever since inheritance tax was introduced in 1986. Successive Finance Acts have tried to keep inheritance tax avoidance under control by disapplying the normal rules in the case of gifts with reservations, and attempting to block loopholes revealed by attempts by tax planners to work around 
 the rules. This Government made the last effort on those lines as recently as the Report stage of what is now the Finance Act 2003. Despite those efforts, schemes to circumvent the ''gifts with reservations'' laws continued to multiply rapidly until December 2003. The schemes were increasingly contrived and were being marketed as packaged solutions that could be offered to people by their financial advisers. 
 We do not have a complete count of how many of those schemes have been executed. It is in the nature of things that the Inland Revenue gets to hear of such schemes—if ever—only when they become active, after the individual concerned dies and inheritance tax rules come into play. Since the pre-Budget report, however, it has been suggested that there are more than 30,000 clients for particular schemes that have had wide success most recently. Assuming that schemes involve assets of the order of £500,000 on average, which seems to be the consensus among their marketers, some tens of millions of pounds, or more, must be wrapped up in them. The Government are facing a substantial loss to the Exchequer. 
 Faced with such figures, the Committee will not be surprised to hear that the Government decided to take action. It is not enough to tackle new arrangements and future avoidance. The Government wanted to send a clear message that artificial avoidance of that kind is not acceptable. Those who devise and market such schemes, and the people who take advantage of them, need to understand that and not assume that avoidance is risk-free. 
 Such schemes have grown so rapidly because they have are regarded as a one-way bet. The essential point is that nothing really changes. For example, let us consider somebody who wants to ensure that the house that they live in is not part of their taxable estate, but they want to remain living there. They see their adviser, sign a series of papers and pay a substantial fee, even though there might be a relatively small amount of work in it. The client goes home, the paperwork is filed and the arrangements are designed to unscramble when the client dies and have no lasting effect. The only real effect is inheritance tax savings that can run into hundreds of thousands of pounds or more. Given that perception of risk and rewards, it is not surprising that people and advisers have found such schemes increasingly attractive. The clause gives notice that that is a false perception. 
 People who have used such schemes, or who contemplate others like them in future, are right to think that they will get any inheritance tax saving that their scheme is able to assure, but they are wrong to think that that protects them against any future tax charge. That is at the heart of the changes under schedule 15.

Howard Flight: The Paymaster General has kindly given some figures. My maths may be slow, but will she quantify what lost tax the Government have assessed? What loss of inheritance tax yield per annum are the measures designed to recover?

Dawn Primarolo: Forgive my trying to put the matter delicately, but it is not possible to give an annual yield. That depends on the age of people when they enter the scheme, and how long they live, which are unpredictable factors. We are reliably informed by the market that 30,000 schemes have developed up to the December period. Billions of pounds of assets are wrapped up in those schemes, so over time hundreds of millions of pounds of inheritance tax will not be paid, and that is a substantial loss over a long period. Indeed, the figure could rise into billions of pounds.
 The question posed for the Government about the clause concerns the challenge whereby gifts with reservations are being negated and the desire to ensure that wealth is appropriately taxed as the tax system requires it.

Michael Jack: I want to concentrate on the figures. It is difficult to accept that, when the Treasury asked the Revenue for recommendations to deal with the schemes, a figure concerning the amount of tax that was at risk was not given with some accuracy. Perhaps I am wrong mathematically, but if there are 30,000 schemes at £500,000, that is £15 million of assets and, at 40 per cent. tax, £600 million. [Hon. Members: ''Billion.''] Is that the right amount? Perhaps we can have an answer.
 If research was undertaken, will the Paymaster General explain the relationship between the high marginal rate of tax in inheritance tax and the incidence of the schemes? On the contrary, if we lowered the rate of tax and got away with exemptions, would that be another way of tackling the problem?

Dawn Primarolo: Before the consultation exercise, the publication of the clauses and the extremely revealing responses that were received, the potential loss of revenue has increased. I am referring to the Revenue's knowledge of the types of marketing schemes. What is provided for is when the asset continues to be enjoyed, as if owned, and that is what comes into the tax charge. Taxpayers then have the choice of whether they want to remain within the inheritance tax laws, and if they do, they can make an election to keep their scheme in place. If they do not come under exemptions in the proposals in the schedule, and they are not within the de minimis, which deals with a huge number of the processes—

John Burnett: Will the Paymaster General give way on that point?

Dawn Primarolo: I will be happy to give way, but it is helpful if I am allowed to finish one point before I move on to the next. Otherwise, I shall lose my way and venture into discussing the schedule inadvertently.
 The schedule provides for an either/or situation. It will either allow the inheritance tax rules to operate as they should without the contrived schemes, or if the scheme is used and the taxpayer does not want to unwind that scheme—or simply elects for it to disapply, which the schedule provides for—an assessment will be made each year of whether they have benefited from use of an unearned asset that 
 comes into taxable capacity, in exactly the same way as the benefit in kind legislation operates. In a nutshell, that is what is provided for in the measures. 
Mr. Burnett rose—

Dawn Primarolo: I will give way to the hon. Gentleman later. I have not forgotten him.
 When we discuss the schedule, the right hon. Member for Fylde will see the fantastically complicated schemes that are currently in place. The Government have sought to create a simple mechanism that will allow people either to come out of the scheme or to allow it to run and take a charge on the assets elsewhere. We shall come to that when we discuss the schedule. I have not forgotten the right hon. Gentleman's point on wealth, and we shall come to that when I have dealt with the question from the hon. Member for Torridge and West Devon.

John Burnett: I know that the Paymaster General is probably bringing her opening remarks to a close fairly soon, but I am sure that she would not want to mislead the Committee into believing that the de minimis limit is in any way generous. Notwithstanding the proposed Government amendment, we are talking about a de minimis limit—predicated at times 20 for a 5 per cent. return—of £100,000. The IHT threshold is considerably more than that. By using the income tax sledgehammer, we are going to catch people who are not even within the IHT limit. It is a deplorable piece of legislation that we shall debate.

Dawn Primarolo: The hon. Gentleman is quite right that we will be debating it, but in the Government's view he is absolutely wrong to suggest that people who would normally be exempt will be caught by it under the normal rules of inheritance tax.

John McWilliam: Order. I suggest that we do not pursue that point until we get to the schedule, because it arises specifically out of the schedule.

Dawn Primarolo: Indeed, Mr. McWilliam. That is all I was going to say on the matter.
 I would like to deal with the point following on from the questions of the right hon. Member for Fylde. When taxpayers engage in such planning, it leaves future taxpayers as a whole out of kilter. The Government wish to deal with that. To all appearances, the taxpayer has modest means, but they enjoy valuable future benefits, such as a rent-free home, valuable art and antiques, and access to a fund of financial assets if they feel the need, that their less-fortunate neighbours—that is, the vast majority—can get only by spending hard-earned, and taxed, income. The Government think that it is perfectly proper to have regard to that for income tax purposes looking forward. That is what we are proposing. 
 One of the issues that we will discuss extensively when we reach the schedule is whether it is retrospective. When we reach that point, I will explain to the Committee why the Government reject that proposition. Clearly, the charge starts from 2005-06 and there are choices that the taxpayer can make.
 It is absolutely true that the Government have benefited from what, in polite circles, we would call a lively consultation process following the announcement of the principle in December. We have made it clear that we wanted to target schemes with the potential to cause serious lose of inheritance tax. The responses in the consultation were of significant benefit in realising that objective, not only because they revealed the extent of the problem—which was considerably wider than I, as a Minister, had appreciated—but because they resulted in some important points being made. The Government are responding to those in our amendments. With a provision of this nature, it is not surprising that interested parties have continued to come forward with points as they have seen the fine print of the legislation. The debate on a substantial number of amendments, both Opposition and Government, will give all those major points a fair airing and discussion. 
 As I said, the Government have been more than happy to take up points in Government amendments. I am happy that there is a significant degree of overlap between what we are proposing and some of the amendments tabled by the hon. Member for Arundel and South Downs and his colleagues. 
 We will debate each of those as we move to the schedule attached to the clause.In the meantime, with those opening remarks, I commend clause 84 to the Committee.

John Burnett: I am also grateful to the hon. Member for Arundel and South Downs. We discussed inheritance tax for a short period in last year's Finance Bill. There was remarkable similarity of view between him and myself. What is fair about a tax that the rich can escape with impunity but that catches millions of people with modest means who may well be subject to the income tax charge and not even have the cash to pay it?
 The clause does nothing to redress those problems. It is a short-term, measly, muddled, useless bit of legislation. Proposed changes to the rules on pre-owned assets will make people completely and unknowingly dishonest. They can fall foul of the legislation and be completely unaware of the fact. Say a daughter or son moves in with their parents, entirely altruistically, and cares for them, forsaking an opportunity to get on the property ladder, and spends money improving the property and refurbishing it. Of course, the daughter or son is saving the state thousands of pounds by looking after the parents, but they will probably fall into the charge to income tax, because they will, by operation of law, have an equitable interest in the property, and any sane, sensible and able lawyer will advise them of that fact after the effect. 
 The legislation catches all post-1986 transactions. We should not be in the business of passing retrospective legislation. Not only is the legislation repugnant because it is retrospective, but it is characterised by muddled drafting and confused 
 objectives. For example, why use an income tax measure to endeavour to correct the shortcomings of inheritance tax legislation? I have referred to the de minimis sum that I know Government amendment. No. 146 will increase to £5,000. However, as I said in an intervention, that will put into charge to income tax people who may well be under the IHT threshold. Will the income tax charge be levied on pre-owned assets that qualify for inheritance tax exemptions—for example, business assets and agricultural property? What will happen in small and medium-sized businesses—family farming partnerships or family businesses—where there are adjustments to capital accounts? What about the Boden principle and the Ralli principle? It is well known that young sons or daughters take on businesses and work for 20 years or so, having been told, ''This business will one day be yours.'' Will they face an income tax charge levied over 20 years? This is horrendous.

Rob Marris: The hon. Gentleman is perhaps more familiar with this than I am, but I thought that the prospective taxpayer could make an election, and that therefore they would not be forced into such a situation.

John McWilliam: Order. We are now debating the schedule. We should not be doing so—we should be debating the clause. I made it clear that we can talk about the principles, but the detail is in the schedule.

John Burnett: You are right. Mr. McWilliam, but I am trying to illustrate the point that, with the confusion and muddle of using income tax, there will be inadvertent liability to tax, and liability to tax where an individual should not be taxed on any principled application of this legislation. Many individuals in small and medium-sized businesses could innocently fall within the ambit of this tax. This legislation will give rise to a large increase in personnel in the capital taxes office and probably to an even larger increase in the valuation office.
 There are confused definitions, for example with regard to intangible assets. Intangible property means any property other than chattels or interests in land.

John McWilliam: Order. The hon. Gentleman is talking about the schedule again.

John Burnett: I am grateful to you, Mr. McWilliam. There are confused definitions, and I will not talk in detail about them. Shared occupation is not dealt with properly, and it has always been a principle that for the owner even of a small equitable interest in property adequate consideration is given to his or her occupation or their use of the property and enjoyment of it.
 This is flawed legislation. It is retrospective, and it is muddled and confused. That is why we should be spending days correcting it.

Howard Flight: We oppose the clause on principle. We feel that the Government are going about the objective that the Paymaster General described—of plugging what are identified as holes in the inheritance tax gifts through the reservation of benefits rules—the wrong
 way. We think that the correct approach is to change the rules on IHT reservation of benefits and to prevent future gifts that avoid the rules from being made. That hits straight at the principle of retrospection. The Government have instead introduced a new tax on gifts that could apply to any relevant situation going back to 17 March 1986.
 The measures are retrospective in their impact on elderly people, many of whom are too old to be able to do anything much about it. More particularly, there is the potential for a much wider range of unintended effect, to which the hon. Member for Torridge and West Devon just referred, and there is scope for unfair and unreasonable impacts on people. Given the wide powers of regulations, there is also the opportunity to misuse in the future what would be put on the statute book now. 
 There is a wider point. It is an old bit of human nature to want to hand from one generation to another the family home, whether large or small. That is a natural and right thing for people to want to do. Every parent wants to do the best for their children. The problem arises because the enormous increase, or bubble, in house prices from Birmingham southwards, as opposed to other parts of the country, has created a huge distortion between IHT arrangements and house prices. It drags in— 
It being twenty-five minutes past Eleven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order. 
 Adjourned till this day at half-past Two o'clock.